Oil: Global shortages intensify US and Asia risks – MUFG

MUFG’s Senior Currency Analyst Michael Wan notes Brent and WTI have surged as energy shortages go global, with geopolitical risks around Iran and Red Sea shipping threatening key routes. The bank warns that disruptions via the Strait of Hormuz and Bab el-Mandeb could significantly impact Oil flows, including to Asia, and broaden into wider energy and refined product shortages.

Geopolitics threaten key oil corridors

"Brent oil prices rose to US$112/bbl while interestingly we saw a sharp increase in WTI oil prices to US$106/bbl, perhaps an initial sign that energy shortages and the global bid for oil has now more clearly spilled over to the shores of the US."

"In particular, President Trump threatened further escalation of attacks on Iran yesterday, including critical civilian energy infrastructure, oil wells, Kharg Island, if Iran didn’t re-open the Strait of Hormuz and a peace deal is not reached shortly."

"Meanwhile, news reports suggest that Iran is pushing the Houthis to prepare for a renewed campaign against Red Sea shipping, contingent upon any further escalation by the US in its war on Iran."

"This matters greatly as Saudi Arabia has thus far been quite successful in shifting around 6-7mb/day of its oil flows from the Strait of Hormuz to Yanbu port located in the Red Sea, and if there are disruptions in the Bab el-Mandeb Strait we could see an even bigger impact on energy flows including to Asia."

"This time around the crisis is truly different, in that it is not just about oil prices, but also 1) about potential energy shortages across Asia, 2) about regional spillovers through refined petroleum product shortages, and 3) 2nd order indirect impact through a whole host of channels such as fertilisers, food production, remittances, petrochemicals, and supply chain disruptions including through travel and transportation sectors among many others."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)